KUALA LUMPUR, July 13 — Crude palm oil (CPO) prices are expected to average RM5,300 per tonne in the second half (H2) of 2022, lower than in the first half due to expectations of higher global vegetable oil supply, higher CPO production especially in the third quarter, as well as lower palm oil exports, says the Malaysian Palm Oil Board (MPOB).

The agency said Indonesia’s decision to ease its export rules to encourage shipments and to reduce its high palm oil inventories will give tough competition to the palm oil industry here.

This came after Malaysia recorded higher export when the world's largest palm oil producer restricted its palm oil export due to several measures implemented such as the three-week export ban imposed from April 28 and domestic market obligation (DMO) to ensure domestic supply availability.

During the first six months (H1) of 2022, CPO was traded 55.9 per cent, or RM2,268.50, higher at RM6,330.00 per tonne on average compared with RM4,061.50 per tonne during January-June 2021. In May 2022, the average CPO price hit a record high of RM6,873.00 per tonne.

"The higher CPO price during the period was influenced by the higher global soybean oil prices, firmer Brent crude oil prices in the world market, palm oil stocks remaining below two million tonnes, lower CPO production and higher palm oil export demand,” director-general Datuk Dr Ahmad Parveez Ghulam Kadir told Bernama.

He said that for H1 2022, exports of palm oil and other palm oil-based products (POPP) amounted to 11.47 million tonnes, up 2.8 per cent from the 11.15 million tonnes recorded in the same period last year.

Surge in palm-based products revenue in H1 2022

Ahmad Parveez said the higher prices of palm oil products boosted the export revenue of POPP by 55.2 per cent to RM67.48 billion in H1 2022 from RM43.47 billion in the same period of 2021.

Exports of palm oil alone increased by 1.7 per cent to 7.19 million tonnes from 7.08 million tonnes previously, representing 62.7 per cent of total POPP export volume during the period under review, while palm oil export revenue surged by 54.5 per cent year-on-year to RM44.63 billion from RM28.88 billion as a result of higher prices.

"Just when the industry was showing signs of recovery this year, the Russia-Ukraine war occurred and disrupted the global supply chain of sunflower oil, pushing up demand for palm oil as an alternative to sunflower oil.

"In addition, Indonesia’s ban on palm oil exports on April 28 placed further pressure on palm oil prices, pushing them upwards, which resulted in contraction of demand in some markets,” he said.

Palm oil prices, however, began to decline rapidly when Indonesia lifted the ban on May 23.

Labour supply remains a challenge

The MPOB said labour shortage is still one of the challenges that need to be addressed by the industry’s stakeholders.

Since 2021, there have been disruptions in the labour supply in the oil palm plantation.

The Malaysian Estate Owners' Association, in a statement released last month, estimated that the oil palm industry has a shortfall of 120,000 workers.

According to MPOB statistics, there was a decrease in total employment in the plantation sector by 6.2 per cent for May 2022 compared to the same period last year.

"Almost all categories of work in the plantations experienced a decline with the highest decline being for the category of work as field worker (fertiliser application, weeding and pruning) and harvester and collector of fresh fruit bunches with a decrease of 8.5 per cent and 6.8 per cent, respectively,” it said.

The agency said that if the problem of labour shortage is not addressed wisely, it may affect the Malaysian oil palm plantation sector’s competitiveness.

Outlook for H2 2022 In H2 2022, the country is expected to produce 10.20 million tonnes of CPO, bringing the expected total production for 2022 to 18.50 million tonnes.

CPO production this year is expected to increase marginally by 2.1 per cent due to expectations of an increase in matured planted areas and favourable weather conditions.

"However, the labour situation in the palm oil plantation sector has driven the CPO production to be significantly lower than the potential business-as-usual scenario of nearly 20 million tonnes,” said the MPOB director-general.

He noted that on average, 90 per cent of Malaysian palm oil production in H2 2022 would be exported due to an expected stronger palm oil demand from major importing countries.

Thus, total palm oil export in H2 2022 is expected at 9.20 million tonnes, thus bringing the total palm oil export in 2022 to 16.65 million tonnes.

Meanwhile, palm oil closing stockpile in 2022 is projected at 1.85 million tonnes.

Rakuten Trade vice president of research Thong Pak Leng said palm oil prices are likely to remain high beyond H1 2022 and into 2023.

"Since international oils and fats supply was already tight, the Russia-Ukraine conflict has compounded the supply bottleneck further.

"Already, rising grain prices are threatening to limit the prospective planting season for oil crops. Palm oil supply, however, looks set to improve seasonally, so expect some downward pressures on CPO prices but prices will stay elevated due to the tight overall edible oils and fats supply internationally,” he said.

Thong said the firm has set an "underweight” call on the plantation sector.

Separately, CGS-CIMB analysts Ivy Ng Lee Fang and Nagulan Ravi said weaker H2 2022 CPO prices, coupled with higher operating costs due to the hike in the minimum wage in Malaysia to RM1,500 per month effective May 1, 2022, higher fertiliser costs, as well as the Cukai Makmur, will lead to lower profit margins in H2 2022 unless productivity improves.

"We keep our ‘neutral’ rating; planters’ dividend yields of 4.9 per cent could be supportive of their near-term share prices despite the bearish sentiment,” they said. — Bernama